Cell carriers clashing over auction rules

The Obama administration is hashing out the ground rules for a blockbuster spectrum auction next year that will pit the nation’s top wireless carriers against each other.

The Federal Communications Commission (FCC) plans to auction off valuable low-frequency airwaves while balancing its congressionally mandated goal of raising revenue for the government with the competing business interests of wireless companies.

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In what will be one of the most complex auctions in the agency’s history, the FCC will buy back airwaves from television broadcasters, repackage those airwaves and sell them to wireless companies looking to boost the capacity and speed of their networks.

The wireless carriers are expected to shell out billions of dollars to obtain the spectrum, but the rules of the auction could determine who gets what.

Industry giants AT&T and Verizon say the FCC shouldn’t limit participation in the auction if it hopes to raise the billions of dollars needed to fund a nationwide network for first responders.

But small companies, including T-Mobile and regional carriers, want the FCC to limit the bidding powers of their rivals to keep the cost of the airwaves low. The small companies say they need the low-frequency airwaves, which travel farther and through walls, to keep the wireless market competitive.

FCC Chairman Tom Wheeler said the agency is prepared to step in to prevent monopolization of the auctions.

“All who want to participate in the auction will be able to bid,” Wheeler said, adding that, “a priority of the auction should also be to fill in the blank white spaces on the coverage maps we see on TV commercials with competitors and consumer choice.”

Wireless industry officials briefed by the FCC said the agency is considering some limits on AT&T and Verizon once the auction reaches a yet-to-be-determined revenue benchmark.

The FCC is looking to set aside 30 megahertz of the available airwaves for exclusive bidding by smaller companies, people familiar with the FCC’s thinking said.

Those limits apply only if the airwave auction in each geographic area reaches its revenue benchmark, and the amount being set aside depends on how much of their airwaves broadcasters are willing to sell, industry officials said.

In a separate proposal, the agency is also redefining the way it evaluates a wireless company’s airwave holdings. Currently, the agency scrutinizes any industry transaction that would result in a company having more than one-third of a market’s airwaves.

The FCC is considering increasing the type of airwaves that count toward that gauge, meaning some companies — especially Sprint and DISH, which hold some higher-frequency spectrum — would be closer to meeting that one-third level. Others, such Verizon and AT&T, would be further away from it.

The FCC will also apply additional scrutiny to industry transactions that would result in one company having more than one-third of the valuable low-frequency spectrum under 1 gigahertz.

The agency will vote on those proposals at its monthly meeting in May.

It remains to be seen how much of their airwaves broadcasters will be willing to sell back. If broadcasters sell back at least 60 MHz, the FCC will reserve 30 MHz for smaller companies to bid on; if broadcasters sell back less, the FCC will set aside less spectrum for the small companies.

Earlier this year, the FCC voted to boost its efforts to encourage broadcasters to participate. Wheeler said last month that the agency would be weighing the costs and benefits of selling back spectrum with individual broadcasters.

Companies are also waiting to see where the FCC sets the auction’s revenue benchmark, which, once reached, would keep the companies with deeper pockets from further bidding.

If the benchmark is too high, companies like AT&T and Verizon would be able to outbid smaller companies, but if the benchmark is too low, the FCC could sell the airwaves at a too-low price, losing out on the necessary revenue.

“Chairman Wheeler’s legacy hinges on how this auction turns out, so he’s looking to raise revenue” one industry official said.

The official expects lobbying efforts on the spectrum auction to increase as the FCC considers thee proposals. The large companies “are very upset with this plan,” the official said.

In a letter last week, 77 House Democrats wrote to the FCC urging the agency to allow unlimited participation to “ensure sufficient funding for the construction of a world class, high-speed wireless broadband public safety network and make available the spectrum needed to keep pace with the nations mobile broadband needs.”

One of the unknown factors in the spectrum auction is the reported merger of T-Mobile and Sprint, which would combine the country’s third- and fourth-largest wireless companies.

That merger — which, although only rumored, already has its own set of cheerleaders and detractors — would likely cause the FCC to reevaluate its spectrum auction plan, according to industry officials.

“If the market changes, the FCC has reserved the right to change the proposal,” one official said.